No matter where you work, the key to success in business is mitigating unnecessary cost and streamlining efficiency. Managers in wholesale, distribution, and retail all tend to come across some common problems when it comes to purchasing inventory from suppliers. With the proper supply chain analytics, however, these problems can become success stories in reducing cost and boosting your bottom dollar.
1. Meeting Vendor Full Truck/Container Requirements
Suppliers will often request to fill shipping trucks and containers to max capacity in order to be efficient and they have to make sure the dollar amount of each sale outweighs their cost. So, when you are buying, how do you use full truck and container load to your advantage?
Using real-time insights and keeping data on your inventory levels and sales trends can help you determine when is the most beneficial time to buy larger quantities of items you need. If the products you need do not fill up a full truck load or container load, consider purchasing extra days of supply for the items you carry to fill up the rest of space.
For example, let’s say your Just In Time (JIT) needs come at ¾ trucks, which means you still have space for ¼ trucks. Add the next extra days of future demand into the truck so that it will fill up the rest of the truck. That way, you fill up the truck while not having to order from the vendor for certain extra days.
2. Maximizing Forward Buy ROI
Every item you try to sell has a carrying cost associated with it. While you can’t avoid this cost, you can mitigate it by maximizing your investment return on forward buys when you are purchasing your inventory. This includes looking for, and taking action on, any discounts available. This could be free shipping deals on your purchases, bulk discounts on order or item volume, and more.
Suppliers often follow patterns when announcing sales and discounts. By keeping historical data, you can predict when their prices will be most favorable to you. When performing forward buy, ensure we do not over buy. This is because after certain quantity, the carrying cost will overweight the initial purchase saving. A better approach would be to use some optimization approach to ensure optimal results.
3. Rebalancing Inventory
Maximizing your forward buy is not the only way to reduce your carrying cost. If you operate multiple stores or warehouses, knowing how to rebalance effectively between locations can be a great way to not only save money, but also increase availability to your customers.
If you have excess items in one location resulting in a high carrying cost, consider moving some inventory to a location that has a short supply or goes through that specific item quickly. The added benefit here is that clients and customers now have two locations from which to acquire the item in question.
Improving your customer relationship while cutting carrying cost—rebalancing is a powerful tool that any manager should learn how to wield. How do you know when, where, and how to rebalance? As with the previous two problems, the answer is data.
4. Knowing When to Use Alternate Sources
Here is a scenario that every manager dreads. You’re short on inventory but high on demand. As your supply starts to run low, you reach out to your supplier for a new shipment and they are temporarily sold out and can’t get you what you need to meet your customer’s needs.
An alternate source may have the inventory you need, but at a higher price than your typical supply chain. However, if they can reliably deliver the product faster than your standard supplier can, it may be worth the extra cost—at least in the short term while your supplier is out of pocket.
Conducting vendor analysis beforehand can help you make the dynamic decisions that are necessary to keep your business running when the unexpected happens to your supply chain.
5. Accounting for the Vendor’s Delay Time
Sometimes, if you know your vendor has a long lead time, you can anticipate and plan for it as opposed to going to a quicker, but more expensive, alternate source. All it takes is some analytics to evaluate your vendor’s historical delivery performance to give you a prediction on future delays.
Maybe your vendor tends to be slower in the summer months, when demand is high. Or, maybe they deliver faster on certain days of the week, allowing you to place more orders and stock up for the anticipated slow downs.
Making smarter inventory purchases is just one thing that proper supply chain analytic tools can help you plan for, ensuring that your business is ready and prepared for whatever might happen.
New Horizon focuses on addressing those problems using advanced analytics and optimization algorithms to achieve best results. Want more information? Let’s talk.
